USD/CAD traded near 1.3840 on Monday, little changed after a brief earlier rise. The pair struggled to extend gains as two forces balanced each other.
West Texas Intermediate (WTI) rose nearly 7% on Monday at the time of writing. The jump followed rising tensions between the US and Iran after talks on Iran’s nuclear programme collapsed, with worries about supply risks near the Strait of Hormuz.
Oil Prices Support The Canadian Dollar
Higher Oil prices tend to support the Canadian Dollar because energy is important to Canada’s economy. Canada is the largest crude oil exporter to the United States, so firmer crude prices can limit rises in USD/CAD.
The US Dollar also found support as market risk appetite weakened after the breakdown in US–Iran negotiations. Higher energy prices also raised inflation concerns and added to the case for US interest rates staying higher for longer.
US Treasury yields moved higher, which helped the US Dollar. With Oil supporting CAD and US rate expectations supporting USD, USD/CAD stayed broadly steady.
We are seeing a similar dynamic to what occurred back in 2025, with USD/CAD caught between powerful opposing forces. The pair is currently trading near 1.3750, as the market weighs strong energy prices against a resolute US Federal Reserve. This tension creates opportunities for traders who can manage volatility.
Policy Divergence Keeps Markets On Edge
The Canadian dollar is finding support from West Texas Intermediate crude holding above $95 a barrel, driven by recent supply anxieties. As of April 2026, Canada’s net exports of energy products have contributed significantly to its trade surplus, a pattern that strengthens the Loonie when oil is high. This fundamental support is putting a cap on any significant upward moves in the USD/CAD pair for now.
On the other side, the US dollar is being propped up by expectations of continued policy divergence between the central banks. The latest US CPI data for March 2026 came in at a stubborn 3.1%, keeping pressure on the Federal Reserve to hold rates higher for longer. In contrast, the Bank of Canada is signaling more willingness to ease policy, which inherently weakens the Canadian currency relative to the greenback.
Given this stalemate, derivative traders should look at strategies that profit from a potential sharp move in either direction. Buying option straddles or strangles on USD/CAD could be effective, as it allows for a payoff if the pair breaks decisively out of its current range. Implied volatility has ticked up to reflect this uncertainty, making these strategies relevant for the coming weeks.
Alternatively, for those anticipating the range will hold, selling options to collect premium is a viable approach. Establishing an iron condor would define a specific price channel where the trade is profitable, capitalizing on the current tug-of-war. This is a bet that neither surging oil nor a hawkish Fed will win out in the immediate short term.
We can look to history for perspective, such as the period in 2022 when oil prices soared but were ultimately overshadowed by the Fed’s aggressive rate-hiking cycle. That historical data suggests that a determined central bank policy can often be the more dominant long-term driver for the currency pair. Traders should remain alert for any decisive shift in rhetoric from either the Fed or the Bank of Canada.
